Newspaper article The Christian Science Monitor

Asian Business Faces the Unthinkable: Chapter 11 Governments Stand Idle as Economic Crisis Pushes Many Firms to Bankruptcy

Newspaper article The Christian Science Monitor

Asian Business Faces the Unthinkable: Chapter 11 Governments Stand Idle as Economic Crisis Pushes Many Firms to Bankruptcy

Article excerpt

That giant crashing sound from the Far East is not just the tumble of stocks and the fall of currencies. It's also the collapse of companies. Despite a long tradition of government intervention to avoid outright corporate failures, Asia is getting used to a new phenomenon: bankruptcy.

The economic forces that sent Asian stock markets plunging in late October - and pushed them down again in recent weeks - have already knocked several companies into insolvency.

Analysts expect more to follow. In the past several weeks alone, Japan's seventh-largest brokerage firm, Sanyo Securities, has gone bust, leaving its creditors holding some $7 billion in losses. It's the first failure of a large nationwide brokerage in Japan since World War II. Indonesia has ordered the closing of 16 troubled banks, part of its pledge to clean up its financial system in return for as much as $40 billion in emergency loans from the International Monetary Fund and other sources. South Korea's currency has fallen to record lows against the dollar, raising concerns that the country's shaky banks will not survive. Already this year, seven of South Korea's top 40 corporate groups have gone bankrupt. "There's a different mentality on the role of government" in East Asia, says Glen Fukushima, vice president of the American Chamber of Commerce in Japan. The business community and the public expect governments to step in to keep large businesses from failing or, at the least, limit the damage from such failure, he says. But "no matter how much these governments intervene, I don't think they can stem the tide of these disruptions." "In these global market conditions, any company can go bankrupt," adds Kunio Igusa, an economist with the Institute of Developing Economies, a Tokyo-based research institute. The region's market conditions took another turn for the worse on Nov. 7, as Japan's Nikkei stock index fell below the 16,000 mark for the first time in more than two years and continues below that level. Hong Kong's Hang Seng Index declined 3 percent and continues to languish, and South Korea's stock market suffered its worst ever one-day decline with its main market index falling 6.9 percent. (See story below). The decline in stock values is important, particularly in Japan, because banks invest heavily in the stock market. If the market falls below a certain level - perhaps 15,000 and certainly 14,000 as measured by the Nikkei index - analysts are concerned banks will be forced to sell off their holdings, triggering a massive market plunge and pushing weaker banks into bankruptcy. On Nov. 7, Japan's largest regional bank, Yokohama Ltd., denied a news report it was selling its entire $5 billion stock portfolio but did admit it was selling some of its holdings to strengthen its own balance sheet. …

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